Abstract
This chapter discusses the traditional literature on Phillips curves in combination with the inflation model. It presents a short-run equilibrium model that is similar to the inflation model. The dynamics of the model are studied when the wage equation simultaneously takes into account demand elements and expectations, as in the literature on the Phillips curve, and autonomous wage-push elements to achieve a target real wage. With respect to this model, the chapter focuses on the trade-offs between inflation and unemployment both in the short and the long run, a subject discussed in the traditional literature on the Phillips curve, to which some elements of cost inflation are added. The chapter also discusses the determination of activity and prices in the short run. In the short run, the level of prices, sales, and employment are determined by a short-run equilibrium For the model to be comparable with traditional models, a continuous time version is adopted. The dynamics of the model is determined by the equations of evolution of the wage level and money balances.
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